With all the shouting going on around raising the minimum wage, how can you tell what the implications will be for your business?
Every few years, the debate about raising the minimum raise comes up and depending on whom you ask, it’s a great idea, or a terrible one. An economy is an ecosystem, and you cannot flood one area without another area feeling the impact,whether that impact is immediate or spread out over the long term.
From entrepreneurs with fledgling startups to old-world institutions, this is a big conversation. Employers must always walk a fine line between wanting to pay their quality people well and maintaining operating costs. This line can fluctuate wildly depending on the kind of business you run.
Yet, the public is often misled about the larger implications of raising pay,historically speaking, so it’s worth examining what economists, small business owners, and other experts in the field have to say about it.
True or False: Raising employee pay will force many businesses to lay off their labor.
False: During the last round of debate in April of 2014, seven Nobel Laureates inEconomics joined 75 other advocates to present an argument in favor of raising theFederal rate from $7.25 per hour to $10.10. Simply stated, upping the minimum means workers have more money to spend, which acts as a boost to the economy.In the past, businesses have seen little to no impact on their labor force and the key is to index the living wage according to inflation1. Because the cost of living has shot up so dramatically in many American cities, places like Seattle and San Francisco have set the bar at $15.00 per hour. Those new rates have yet to go into effect and so the outcome is unclear.
True or False: A higher hourly wage will force businesses to raise their prices.
True: But it varies widely. Take for example the restaurant industry, which relies on minimum wage workers and requires high overhead. Even if a restaurant reorganizes for more efficiency, it often cannot afford to let employees go, so the cost gets passed onto the customer. By contrast, law firms won’t be affected as directly since these types of businesses don’t have many or any minimum wageworkers at all.
True or False: Businesses will have access to a more skilled labor pool.